MORAL HAZARD AND ITS MANIFESTATIONS WITH REGARD TO FINANCIAL SPHERE

Ilona Bazantova

Economy & Business Journal, 2016, vol. 10, issue 1, 140-150

Abstract: The article analyses the historical and theoretical concept of “moral hazard” including the analysis of situations that can be the parts of this economic phenomenon. The space for moral hazard is open every time when people are fully aware of the fact that they will not be obliged to bear full consequences or costs of their behaviour or decisions. The moral hazard may be of a private nature, it is usually connected with the information asymmetry, not effective corporate governance and individual contracts of insurance or guarantee. Moral hazard may also occur in the public sphere, when a civil servant acts knowing that he will not be responsible for costs of his work or impacts of his poor quality decisions or inactivity. The public sphere may include the field of obligatory insurance. One of the manifestations of the public moral hazard is also the concept “too big to fail”. At first it was connected with big financial institutions, banks and insurance companies, which could not become bankrupt according to government for national economy reasons (example is a part of the New Deal programme). Nowadays, the “too big to fail” approach is extended to big industrial and infrastructure companies, too. Currently, in the financial sector it is the so called system (international) moral hazard, which is supported and caused in the long run again by the so called government and regulatory rescue measures, which frequently have support in institutionalised rules and customs of international and transnational organisations.

Keywords: moral hazard; obligatory insurance; doctrine “too big to fail”; information asymmetry; european banking union (search for similar items in EconPapers)
JEL-codes: A (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:isp:journl:v:10:y:2016:i:1:p:140-150

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